China arrests employees and raids offices of US due diligence firm Mintz Group

Chinese authorities raided the Beijing office of US corporate due diligence firm Mintz Group and arrested five local employees, the company said, stoking concerns of foreign firms in China just as it is hosting an international business forum.

News of the raid and arrests comes as Sino-US relations soured after months of diplomatic tensions, including the launch of a suspected Chinese spy balloon by the US military in February and a planned US transit by Taiwan President Self , have deteriorated over the next week-governed island that China claims as its territory.

“We can confirm that Chinese authorities have arrested the five employees of Mintz Group’s Beijing office, all Chinese nationals, and suspended our operations there,” the company said in an emailed statement to Reuters late Thursday.

It is ready to work with the Chinese authorities to “resolve any misunderstandings that may have led to these events” and that its main concern is the safety and well-being of colleagues in China.

“Mintz Group has not received any official legal notice regarding a case against the company and has urged authorities to release its employees,” the company said.

Chinese Foreign Ministry spokeswoman Mao Ning said on Friday she was not aware of the case. The Beijing Public Security Bureau did not respond to a request for comment.

A source for the New York-headquartered firm previously told Reuters on condition of anonymity that the company’s local lawyer said the raid took place on the afternoon of March 20 and the employees were being held incommunicado somewhere outside of Beijing .

‘RED ALARMS’

According to Mintz Group’s website, the Beijing office is the only one in mainland China. The website says the company specializes in background checks, fact-gathering and internal investigations. According to media reports, diverse customers include the National Football League, New York City and the Beatles.

Mintz has 18 offices around the world and hundreds of employees. Randal Phillips, a partner with the firm who heads Asia operations but is based outside of China, is listed on its website as a former chief agent of the Central Intelligence Agency in China.

Phillips worked in Beijing for years after leaving the CIA. There was no indication the incident was related to him and Reuters could not reach him for comment.

News of the raid and arrests comes as Beijing prepares to hold the three-day China Development Forum on Saturday, where executives from multinational companies and representatives of international organizations will be among the more than 100 foreign delegates in attendance.

A US business figure told Reuters that the Mintz Group incident sends a “remarkable signal” that Beijing wants foreign money and technology, but does not accept credible US firms that carefully scrutinize Chinese partners or the business environment .

“Red alert should now be going off in all boardrooms about risks in China,” said the source, who declined to be named due to the sensitive nature of the matter.

China has said it welcomes foreign trade and investment but stressed that security comes before development.

US companies that do business in China are increasingly pessimistic about their prospects in the world’s second-biggest economy, according to a survey released this month by China’s American Chamber of Commerce.

Two-thirds of respondents cited rising tensions between the US and China as the top business challenge.

Western due diligence firms have already run into trouble with Chinese authorities. British corporate investigator Peter Humphrey and his American wife Yu Yingzeng, who ran risk consultancy ChinaWhys, were arrested in 2013 after working for British pharmaceutical giant GSK.

An employee of another foreign company that provides due diligence services in China said on condition of anonymity that it was not clear whether the Mintz Group was an isolated case or part of a larger operation.

Some firms “might now choose to exercise extra caution when conducting due diligence tasks in China,” the staffer added.